Lionsgate's Future Intertwined With China, Says CEO Jon Feltheimer

The country's Hunan TV and the studio have created a template for working together, and "we're not going to try to jam product into China that doesn't make sense," he says.

Lionsgate CEO Jon Feltheimer said Wednesday that a $375 million film-financing deal with Hunan TV came about because the Chinese company was involved in all the right sectors, and he said his studio's future was closely linked to China.

"After a lot of conversations with a lot of people, we felt this was the simplest one that touches all those boxes," Feltheimer told THR in an interview in Changsha, in China's Hunan province, after the deal was formally announced. "They're in film production, distribution, advertising, location-based entertainment business, they are in TV in a major way, they are in the cable business. They stepped up, and we stepped up, and at a certain point we said we were going exclusive."

Under the terms of the deal, Hunan’s wholly owned subsidiary TIK Films will co-finance all qualifying Lionsgate feature films for the next three years, including films such as Gods of Egypt, Now You See Me 2, The Last Witch Hunter, starring Vin Diesel, Sicario and The Age of Adaline, starring Blake Lively and Harrison Ford.

"The minute this deal was signed, they were already investing in a whole bunch of movies, and they will distribute those movies and co-finance the movies they mentioned. We've created a template [for] working together," said Feltheimer.

Under the terms of the deal, Hunan TV will fund a quarter of Lionsgate’s production costs, or $375 million, with the investment capped at $125 million a year.

"China is for sure the number two film market — last month it was number one," the Lionsgate CEO said. "In terms of core business growth, we've got to be here and figure it out. We have to be part of the scene in China for us to be successful over the next five years, and I'm hoping this deal will be a large part of this."

China's regulatory environment is notoriously tricky, but Feltheimer said he did not find it any more difficult than other markets.

"Every market has its own vicissitudes, and you have to be respectful of each of the cultures, and so far it hasn't been a big issue for us," he told THR. "This deal was approved in whatever way it had to be approved. Everybody wants all of our businesses to have no restrictions in any country, but even in Canada, in order to distribute home entertainment you need to follow the Canadian rules, and it's just about as hard to do business there as it is in China. We are respectful of everyone's culture being different, the rules being different, and we try to follow those rules. We have enough content, and if every single thing doesn't play here, then that will be OK."

There has been a lot of discussion about co-productions in China. Official co-productions have a bigger slice of the box office and have better access to the market, but there are few examples of major successes so far.

Feltheimer said that problems have come when people strike a deal without having produced a movie or TV show. "You need to ask: Is that a viable product? Is it repeatable? Is it special? Does it survive the test of time, meaning does it add value to your company? Is it true library product? If it's not, then you probably shouldn't be making it no matter what your co-financing deal is," he explained.

Said Feltheimer: "We're not going to scramble to make Chinese movies that we don't believe in, we're not going to make co-productions that we don't believe in and we're not going to try to jam product into China that doesn't make sense."

He said that one area that would be of particular interest would be developing content based on video games, with the first project to be based on Candy Crush Saga, as well as localizing successful TV shows for the China market, including shows based on Matt Kunitz titles such as Fear Factor.

"We're going to build big production values, build one big set, maybe do three or four different languages on that one set. The core is to find one thing that works for one audience," said Feltheimer.

Feltheimer also spoke of his excitement about the virtual reality business that Lionsgate's Summit Entertainment label is building with Samsung. Among the VR efforts is Insurgent, the second installment in the Divergent franchise. Fans don an Oculus-powered Gear VR headset and enter a 360 degree immersive world where they are captured by Jeanine Matthews (Kate Winslet) and her Erudite faction.

"When you put that headset on and think of all the applications for home entertainment, sports, gaming — technology keeps creating new and better ways to enjoy entertainment, and for us the key thing is to be really controlling as much intellectual property as we can, not just in the U.S.," said Feltheimer.

Last year, Lionsgate and the Chinese e-commerce colossus Alibaba signed a strategic collaboration deal to offer Lionsgate titles in China, including Divergent and The Twilight Saga: Eclipse and TV shows such as Mad Men, Weeds and The Royals.

The movies and TV shows are available through the Lionsgate Entertainment World (LGEW) service, a subscription streaming service for mainland China that will be available exclusively through Alibaba's set-top box.

Nearly two thirds of Chinese people access content via their cell phones or tablets, and looking ahead, Lionsgate is also keen to expand its presence in mobile.

"You can't ignore mobile. We are doing a lot of stuff in the game space, mostly nonconsole stuff, and those are primarily mobile/pad games. That's going to be a big business, and it's a lot simpler than going for a console game. We don't care what device you watch on, as long as you watch it," said Feltheimer. "To be able to watch something that you start on your television that you then move to your mobile device, I think that's a big benefit for the content business."